The question presented is whether a plaintiff who has agreed to a contractual term defining severance entitlement may nonetheless may make claim of aggravated and punitive damages.

To that end, a review of the relevant case law on this subject follows.

The Old Law - Wallace

It may be debatable whether a claim for an incremental notice period awards as provided by the Supreme Court in Wallace vs. United Grain Growers  is dead or alive today. Wallace allowed for an increased notice period, given bad faith conduct of the employer which caused the plaintiff emotional suffering or interfered with his post-termination job search.

Honda – Aggravated Damages

Honda v. Keays, a further Supreme Court decision released in the summer of 2008 changed Wallace. Keays sued Honda alleging he was fired due to a medical issue. After termination, he was not medically able to work. The trial decision followed Wallace, found a breach of the duty of good faith and awarded an increased notice period.

The Supreme Court, however, determined that in this case, had such a breach been actionable ¹ that a court should not increase the notice period to compensate for emotional harm, but rather should award damages for emotional distress, where proven.

Post Honda – Moral – Aggravated Damages

A good example of a recent decision made in October of 2010 awarding such damages described as “moral damages” is the decision of Mr. Justice Stinson in Zesta vs. Cloutier et al, referring to the counterclaim of Joe Durante, in which an incremental award of $75,000 was made for moral damages. A similar award of “aggravated damages” of $75,000, a different term for the same award was made to the plaintiff in Pate v Galway considered below. An award of $200,000 was made in Boucher v Wal-Mart.

After the Keays v Honda decision, many observers believed that Wallace was hence outdated law, with respect to the remedy available for a breach of the duty of good faith.

It must be noted, however, that Keays did not assert a breach which impacted his ability to seek other employment. Keays was medically disabled and not looking for new employment. His original trial award for increased notice was strictly for emotional distress.

Wallace Still Lives ?

For this reason, it should be still possible to claim the Wallace “bump” for unfair conduct which adversely affects the employee’s ability to obtain new employment. This could include conduct such as unjustifiable cause allegations as were made in Wallace, the employer’s failure to provide a reference letter where there were no performance issues leading to termination or similar conduct. This is reviewed in more detail here.

Punitive Damages

Typically punitive damages have been rarely awarded in employment cases, and when they have been made, have tended to be fairly modest, in the range of $10,000 to $25,000.

The recent trial decision of Mr. Justice Gunsolus in Pate Estate v Galway-Cavendish and Harvey Township awarded the late Mr. Pate punitive damages of $550,000. The case is factually distinctive and has had an unusual judicial history. This award was reduced by the Court of Appeal to $450,000.

Aggravated damages were awarded in the sum of $75,000, in addition to the legal costs of his defence of the criminal trial of $7,500.

A jury trial in Prince George, B.C. has recently made a very similar award in Higginson v Babine Forest Products on June 29, 2012. Unlike a trial before a judge, a jury answers questions put to them by counsel and accordingly there is no judge’s decision outlining the facts and the reasoning behind the award. In this case, the jury awarded Mr. Higginson, an electrical supervisor employed for 34 years a notice award of 2 years, typically considered the maximum, plus a punitive damage award of $536,000, resulting in a total judgment of $800,000.

The company appealed and the case was settled prior to the appeal being heard. As noted, the case is not reported in the normal sense. The reader may get a sense of the allegations in the motion decision on an unrelated matter.

The Ontario Court of Appeal in Boucher v Wal-mart reduced the punitive damage award made against Walmart from $1 million to $100,000, primarily due to the reasoning that the compensatory damages were sufficient. Similarly the award against the personal defendant for punitive damages was reduced from $150,000 to $10,000. Aggravated damages were awarded at trial of $200,000 against Walmart, which was upheld on appeal, as was the trial award against the personal defendant for the intentional infliction of mental suffering in the sum of $100,000.

These cases are merely intended to be illustrative of additional awards which may be made against an employer which arise out of the employment relationship and the manner of termination. Human rights cases provide similar forms of relief beyond the norm of a severance payment.

Does the Employment Contract bar Such Claims ?

The plaintiff in Boucher had signed an employment contract which limited her claim on termination to 20 weeks. This agreement was not challenged by the plaintiff. It was not a defence to the claims for incremental damages for bad faith conduct and in fact, this position was not even argued by the employer.

It is clear that an otherwise valid termination clause cannot impeded such claims.

It is, of course, contrary to law, to contract out of human right remedies.

Wallace Part 2

As to the possible argument that the second branch of Wallace remains actionable, there is a debate as to whether this claim may be precluded by a valid termination clause.

Loukidelis J. of the Ontario Superior Court considered such an issue in Smith v Casino Rama in his decision released in July of 2004. This case was decided pre-Honda and hence the law at this time allowed for extended notice where the employee was treated in an abusive manner on termination.

The plaintiff was hired by the defendant, initially, as a security guard and subsequently as a security officer. Ms. Smith suffered some medical issues in May of 1998 which required her to be absent. She obtained one medical leave and three extensions, the last of which was to expire August 31, 1998. All medical leaves were supported by medical opinions. She received short term disability payments from the insurer.

The employment contract contained a limiting provision by which the employer’s termination obligation was that set by the ESA, which in this instance, was two weeks’ pay or notice. Following her dismissal she was diagnosed with multiple sclerosis.

She returned to work on August 19, 1998. After an hour, she felt dizzy and had to leave and so advised her superior. She called the Director of Security on August 20 and advised she could not work that day. She did not contact the Group Health Benefits Administrator, Ms. Murdoch, to advise her nor did she provide an updated medical note to state that she was unable to complete her return to work two week trial period. Ms. Smith did call Sun Life directly to advise that she was off work again, an issue which apparently irritated Ms. Murdoch.

She was terminated the next day “based on the non-compliance of procedure”. Initially the termination letter asserted this to be cause, a position abandoned prior to trial. The company, nonetheless, asserted that it was the breaches of procedure that led to termination.

The trial judge found that Mr. Crozier expressed some satisfaction on learning of the dismissal decision by saying “We’ve got her”. It is to be noted that the time period off work prior to termination was then lacking a diagnosis. She was considered by some “to be working the system”.

The court reviewed the obligation of the employer to act in good faith as set out in Wallace and concluded these facts warranted a Wallace extension.

As to the contract issue, the trial judge stated:

Had the letter of termination been much less explicit, I would tend to agree that the contract terms would override any common law right to an extended period of notice.

The letter of termination was not reproduced in the decision. It was the contents of the letter that showed the employer made a “rush to judgment” and acted unfairly. Presumably if the letter was “less explicit” there would have been no bad faith, but this is entirely speculative. The interpretation of these words remains a mystery to this reviewer.

The judge did hold that a termination clause ought not to limit bad faith damages:

To hold that a restrictive clause in the employment contract automatically excludes Wallace damages would grant the employer an unlimited right to act in any unreasonable manner in dismissing an employee.

Webber J. of the Supreme Court of PEI, also a pre-Honda decision in April of 2000, agreed with the proposition that a Wallace extension may be allowed in addition to the agreed termination sum set by contract in Barnard v Testori. The trial judge found bad faith on the part of the employer and awarded an incremental notice of four months beyond the contracted severance of 8 weeks.